tomorrow brings NFP and markets are pretty coiled up for it. The risk trade is in focus and this can of course push a number of other markets along with it. On the lucky side, VIX slid back below 20 today so premium isn’t as expensive. Straddles can look more attractive going into option expiry next week.

The setting: Bad is good and good is bad. A strong beat spells a hawkish Fed and vice versa. The degree of that strength/weakness is likely to be metered, however, as a small beat will spell a taper announcement in November and higher probability of that 2022 rate hike, but if the doors really are blown off then we can be looking at a bad scenario where a second rate hike starts to get priced in next year. A bad number is likely going to bring a strong bid to stocks as it puts the Fed in even less of a rush to make that first move away from less loose policy.

S&P 500

It looks like the tide is turning here. We’ve had similar instances of pullback in the pandemic backdrop but we haven’t had one yet where the Fed didn’t come to the rescue with more assurances of soft policy. There was very decent grind at the 50% marker of the May-September move. Price is riding under the 21 EMA and this can keep open the bearish scenario until the high at 4475 is traded through.

S&P 500 Daily Chart

S&P 500 Daily Chart


If there is a source of pain then it will likely come from the USD. The Dollar shot higher last week as markets started to price in higher rates. that theme remains bullish, with price action finding support at prior resistance after pulling back from the ascending triangle breakout.

This is probably at least somewhat inversely correlated with the SPX at the moment.

USD Daily Chart

US dollar daily price chart